Charges related to JPMorgan Chase & Co. (JPM)’s sales of mortgage-backed securities could be filed as early as today by U.S. prosecutors in California who have been investigating the bank, a person familiar with the matter said.
The bank said last month in a regulatory filing that the U.S. Attorney’s office in Sacramento had parallel civil and criminal investigations under way. Investigators already have concluded that it broke civil laws and were examining whether criminal laws were broken, according to the filing.
“In May 2013, the firm received a notice from Civil Division stating that it has preliminarily concluded that the firm violated certain federal securities laws in connection with its subprime and Alt-A residential MBS offerings during 2005 to 2007,” the bank said in the filing.
JPMorgan last week admitted to violating federal securities laws and agreed to pay about $920 million in connection with more than $6.2 billion in trading losses at its London offices. The U.S. Securities and Exchange Commission said senior managers at the bank knew in April 2012 that the bank’s chief investment office in London was using aggressive valuations that hid losses.
The U.S. Justice Department is still investigating the trading loss. Alt-A refers to home loans that typically didn’t require documentation such as proof of income.
The probe of the New York-based bank’s securities sales stems from the work of an Obama administration task force set up to investigate causes of the financial crisis. The group includes U.S. Attorney Ben Wagner in Sacramento and New York Attorney General Eric Schneiderman.
Adora Andy, a spokeswoman for the U.S. Justice Department, and Brian Marchiony, a spokesman for JPMorgan, declined to comment yesterday on the federal probe.
Schneiderman sued the bank in October alleging that the Bear Stearns business the bank took over in 2008 defrauded mortgage-bond investors, who were deceived about defective loans backing securities they bought.
The bank also faces lawsuits by the Federal Housing Finance Agency, the Federal Home Loan Bank of Pittsburgh and other buyers of the mortgage-backed securities it sold.
The person who said prosecutors will file charges asked not to be identified because the matter isn’t public. The U.S. is investigating JPMorgan under the Financial Institutions Reform, Recovery and Enforcement Act, according to another person. FIRREA allows the Justice Department to pursue civil remedies.
The California probe is focused on loans and mortgage-backed securities put together by JPMorgan itself, not the ones acquired when the company bought Bear Stearns Cos. and Washington Mutual Inc.’s banking operations in 2008, according to a person briefed on the matter.
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